Make a Budget #3

As we start 2012, I’m focusing several posts on Budgeting. This is post no. 5 in my Budget series, and the third post covering my “6 Steps to Create a Great Family Budget.” The last post covered Step 3; this post adds Step 4: “Add in monthly cash savings for family goals”. Click the Budget Category link on this blog’s homepage to see the entire Budget series.

My “Make a Budget” series will walk you through the 6 Steps that I think will work well to help you make a great budget. What makes a budget great? It’s not how well you forecast your fortunes or misfortunes during the upcoming year. The measure of a budget’s value is how well it helps you make better money decisions. And that’s the sort of budget my 6 Steps are designed to make.

Step 4: Return to the goals and expense budget you documented in Steps 1 and 2. Now add the monthly cash savings needed to meet each goal. To help estimate how much you need to save every month to reach a goal by a certain point in time, use this online calculator.

Finally, add a line across the top of your budget for each household wage earner’s monthly take home pay, and enter the numbers you came up with in Step 2. Put in a subtotal: Total Household Take Home Pay.

At the bottom of your budget sheet add a Household Net Money line.

Household Net Money = Total Household Take Home Pay – Total Household Expenses

Be creative to suit your needs, but your budget should resemble the format in the example below.

Is Your Budget Balanced?

A budget is balanced when take home pay is more than the total of all household expenses, including cash used to pay down debts or set aside for vacations, future college costs, or other goals. If Household Net Money is negative, your budget is out of balance.

“Extra” Checks

Remember in Step 2 I asked you to leave out for now the two “extra” paychecks per year if any wage earner is paid every other week and so gets three checks in two months of the year? Now, bring those into the picture by dedicating those extra paychecks to a Necessary expense you pay periodically (once or twice a year), like school tuition or insurance premiums.

You can do this in a couple of different ways, but here’s what I suggest: Say you pay auto insurance once per year and the premium is $1,200, and say one wage earner’s take home pay is $500 per check. Cut the auto insurance budget to $200 ($1,200 premium – $1,000 in extra take home pay), and keep the two extra checks out of your take home pay. Make yourself a note that you did this, and remember: Those extra checks are dedicated to car insurance!

Still Unbalanced?

Is your budget still out of balance, meaning your expenses are more than your take home pay? If so, now comes the fun part, which will be discussed in Make a Budget #4.

Tweeters of the world, unite!

Best Way to Repay Debt

I recommend the nonprofit, registered charitable organization Consolidated Credit Counselling Services of Canada for help to Canadians with budgeting and repaying debt. For a free review of your situation, call 1-844-257-5848 or visit this website.